Quick answer
A progress draw is a staged payment from a construction or development loan, released when the build reaches an agreed milestone such as base, frame or lock-up. Before each draw, the lender usually has the work inspected and checks that enough loan money remains to finish the job. Interest is charged only on the amount drawn so far, so costs grow as the project does.
Key points
- Construction loans are paid out in stages, not as one lump sum
- Each draw follows a builder's claim and, usually, an independent inspection
- Lenders check the undrawn balance can still finish the project
- Interest is charged only on what has been drawn
Lenders don’t hand over a construction loan in one go, because on day one there’s nothing to lend against but a slab of dirt and a set of plans. Instead, the money flows out in progress draws: a series of payments, each unlocked when the build reaches a milestone and someone has checked it’s genuinely there.
How a progress draw works, step by step
- The builder lodges a claim for the stage just completed, with an invoice.
- The lender orders an inspection, usually by a valuer or quantity surveyor, to confirm the work is complete and the claim is fair.
- The cost-to-complete check: the lender confirms that the loan money left undrawn, plus any equity still to come, is enough to finish the job.
- You sign an authority to release the funds.
- The lender pays the builder directly, and interest starts on that extra amount.
Your own contribution normally goes in first. Many lenders want the borrower’s equity spent on the project before the first loan dollar is drawn, so the bank’s money always sits behind finished work.
What the inspector is really checking
Two things. First, that the stage meets its definition. In Victoria, for example, Consumer Affairs defines lock-up as external cladding, roof covering, flooring, external doors and windows all in place, and frame as completed and approved by a building surveyor. Second, that the money claimed so far matches the value of work in the ground. A builder running ahead on claims is a warning sign the lender wants to catch early.
That second check is the one that bites developers. If a variation or price rise pushes the cost to complete above the undrawn balance, the lender will pause draws until you fund the difference. A 5–10% contingency in the budget is cheap insurance against a stalled site.
A worked example: two townhouses in Geelong
A small developer engages a builder on a $1.2m fixed-price contract using the staging Consumer Affairs Victoria sets out for a full build, which assumes a 5% deposit.
| Stage | Share of contract | Draw |
|---|---|---|
| Deposit | 5% | $60k |
| Base | 10% | $120k |
| Frame | 15% | $180k |
| Lock-up | 35% | $420k |
| Fixing | 25% | $300k |
| Completion | 10% | $120k |
| Total | 100% | $1.2m |
Notice the shape. Lock-up is the single biggest draw, and by that point $780k, nearly two-thirds of the contract, has been paid. Interest on the first few months is modest because little has been drawn; in the final quarter of the build it’s charged on most of the facility. If the loan capitalises interest, that growing cost is added to the balance and cleared from sale proceeds or a refinance at the end.
Need help funding a staged build like this? Start an enquiry and we’ll look at the numbers with you.
Progress draws on commercial jobs
On commercial and larger development projects, draws are often monthly rather than tied to fixed residential stages. The builder’s monthly progress claim is checked by a project monitor, and retentions are held back until defects are fixed. Contractors waiting on those claims sometimes bridge the gap with progress payment finance.
Progress draw vs drawdown
A drawdown is any release of loan funds. A progress draw is the construction version: a drawdown that only happens after a stage is inspected and approved. For the bigger picture of how these loans are sized, see construction and development finance and the loan-to-cost ratio.
Related terms
Valuation, loan-to-value ratio, exit strategy and settlement.
Planning a build or stuck between stages?
Perhaps you’re arranging funding for a first project, or perhaps a draw has stalled on a cost overrun. Either way, the fix depends on the project’s numbers and your equity. Send us an outline through the enquiry form, a job of about a minute. Enquiring doesn’t put a credit check on your file, and the details aren’t circulated around a pool of funders. Someone experienced in development lending reads your project and phones you. Accurate costs, contract value and land value help us match the right funder on the first go.
Frequently asked questions
Who does the inspection before a progress draw?
Usually a valuer or quantity surveyor appointed by the lender. On larger commercial projects it may be a dedicated project monitor. They confirm the stage is complete and the claimed amount matches the work done. The borrower normally pays for these inspections.
Does the money go to me or the builder?
Most construction lenders pay the builder directly once the borrower signs an authority to release the draw. That protects everyone: the funds go where the work was done.
What happens if costs go over budget?
Lenders won't release a draw if the remaining loan funds can't cover completion. The borrower usually has to put in extra equity to cover the shortfall before further draws are paid. Building in a contingency from the start avoids this.
Do I pay interest on the full construction loan from day one?
No. Interest is charged on the drawn balance only, which starts small and rises with each stage. Many development loans capitalise this interest, adding it to the loan until completion, instead of requiring monthly payments.
How long does it take to get a progress draw paid?
It depends on how quickly the inspection is booked and the paperwork is in. With an organised builder and lender, a few business days after the claim is common. Delays usually come from missing invoices, variations not yet approved or an inspection finding the stage incomplete.